OVERVIEW AND DISCUSSION OF HOUSE BILL 609: THE SHOW-ME HEALTH INSURANCE EXCHANGE ACT

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1 OVERVIEW AND DISCUSSION OF HOUSE BILL 609: THE SHOW-ME HEALTH INSURANCE EXCHANGE ACT Joel Ferber and James Frost, Legal Services of Eastern Missouri, Updated April 8, 2011 House Bill 609 would establish a new Show-Me Health Insurance Exchange in Missouri. This legislation was voted out of the House Health Insurance Committee on March 17, 2011 but the House Rules Committee returned the legislation to the Committee on March 30th for further revision and a new version was voted out of the Health Insurance Committee on March 31, The bill was placed on the House s federal mandate calendar and was taken up for perfection on April 7th. We have updated this paper to account for the most recent changes. A health insurance Exchange is a new health care market place in which individuals and small businesses can purchase affordable health insurance coverage. States are required to set up Exchanges under the federal health reform law, the Patient Protection and Affordable Care Act (hereinafter, The Affordable Care Act or ACA ). The ACA allows states to choose between implementing their own Exchange or having the federal government establish and operate an Exchange for them. States that choose to establish their own Exchanges must meet federal guidelines, but they have significant flexibility regarding how they implement and operate their Exchanges. 1 If the state does not act (this year or next), the federal government will step in and operate an Exchange for Missouri. 2 As no regulations or guidance have been issued on federal Exchanges, there is little indication of what a federal Exchange would look like or the degree of involvement that would be afforded to Missouri stakeholders. House Bill 609 would establish an Exchange that generally meets federal requirements and fills in some of the areas in which the ACA is silent. This legislation would give Missouri greater control over its Exchange and would provide more certainty over the design and structure of the Exchange. In large part, HB 609 adopts language from the National Association of Insurance Commissioners (NAIC), which developed model language for a state Exchange based on ACA requirements. HB 609, like that model legislation, largely incorporates mandatory provisions of the federal act, and fills in details that are not addressed by the ACA. 3 One of these areas is the governance of the Exchange. HB 609 would establish the Exchange as a quasi-governmental body with a Board of Trustees comprised of legislators, Directors of key state agencies and individuals appointed by the Governor. The bill would allow individuals with conflicts of interest (specifically representatives of insurers and brokers) to serve on the Board but would preclude them from participating in deliberations and voting on issues that affect them. Beyond the minimum federal requirements, the bill also requires the Exchange to operate a broker referral network and allows Medicaid plans to be provided through the Exchange. This paper is divided into two sections: a description of the bill s key elements (with limited commentary) and a discussion of some specific issues and questions raised by the bill.

2 I. OVERVIEW OF HOUSE BILL 609 KEY ELEMENTS (Section ) A. Purpose and Intent of HB 609 As mentioned above, House Bill 609 would set up a Show-Me Missouri Health Insurance Exchange, a new quasi-governmental organization governed by a Board of Trustees (hereinafter, Board ). 4 The purpose of the legislation is to establish a health benefit Exchange to facilitate the purchase and sale of qualified health and dental plans in the individual market and to provide for the establishment of a small business health options program (SHOP Exchange) to assist qualified small employers in facilitating the enrollment of their employees in qualified health and dental plans. The intent of the legislation is to reduce the number of uninsured, provide a transparent marketplace, increase competition in the health insurance market and portability, reduce health care costs, provide consumer education and assist individuals with access to programs, premium assistance tax credits, and cost-sharing reductions. The Exchange must conduct extensive consumer outreach to increase the awareness and effectiveness of the Exchange. (Sections , ) B. Governance The Exchange would be governed by a seventeen (17) member Board. The members are to consist of the following: The Directors of the following departments as ex officio members: (a) Social Services, (b) Insurance, Financial Institutions and Professional Registration (DIFP), who also serves as the Board s vice-chair, (c) Mental Health, and (d) Health and Senior Services. Two members of the Missouri House of Representatives (one from the majority party and one from the minority party) to be appointed by the Speaker of the House; Two members of the Missouri Senate (one from the majority party and one from the minority party) to be appointed by the President Pro Tem of the Senate; and Nine members appointed by the Governor, with the advice and consent of the Senate. The nine members appointed by the Governor must be comprised of the following individuals: 2

3 A representative of licensed health insurance producers (i.e.. brokers or agents); Representatives of two licensed health issuers (i.e., insurance carriers) who participate in the unified Exchange one that ranked an one of the top ten insurers by total market share in the state and one that is ranked between eleven and twenty in total market share (according to DIFP rankings); A public health consumer advocate for individuals who purchase coverage through the Exchange; A large employer representative; A small employer representative; An individual with expertise in administering and negotiating health plan contracts on behalf of employees; and Two at-large members. On the first Board, the at-large members will serve only one year, the small employer representative and the large employer representative will serve two years, and the rest of the board members (e.g. the representatives of licensed health issuers and licensed health insurance brokers, the public health consumer advocate and the individual with expertise in administering and negotiating health plan contracts on behalf of employees) will serve three years. After the initial Board, all members appointed by the Governor will have three-year terms while the various state officials (i.e., legislators and Department Directors) will serve as long as they hold their respective titles and positions. Members may be reappointed after their terms are completed. The Board must appoint an Executive Director who will have control over the offices, records and employees of the Exchange. The Executive Director will be responsible for all funds, securities and property belonging to the Exchange. The Board will have exclusive jurisdiction and control over the funds and property of the Exchange. The Board must arrange for annual audits of the records and accounts of the Exchange by a certified public accountant or a firm of certified public accountants, keep a record of its proceedings which must be open to public inspection, and prepare an annual report showing the financial condition of the Exchange. The Board is subject to the Missouri Open Meetings and Records Act and will meet at least quarterly. The Board may promulgate rules to implement the new provisions established by HB (Section ) C. Conflict of Interest HB 609 specifically allows individuals with conflicts of interest to serve on the Board as long as they annually disclose such conflicts and recuse themselves from board deliberations and voting on issues on which they have a conflict. Annual disclosures of conflicts must be supplemented as necessary during the year if a Board member s personal or professional financial interest in relation to the Exchange changes in any way. 3

4 The current version of HB 609 excludes prohibitions against direct financial conflicts of interest that were part of the initial bill. 6 Any Board member or employee accepting any gratuity or compensation for the purpose of influencing his or her action with respect to the investment of the funds of the [E]xchange must forfeit his or her position and be subject to additional penalties that are prescribed by law. D. Exchange Responsibilities (Sections , ) HB 609 specifies a long list of responsibilities for the Exchange, many of which are required by the ACA: Facilitating the purchase and sale of qualified health plans and dental plans; 7 Providing for the establishment of a unified Exchange to assist individuals who purchase coverage in the individual market and qualified small employers in facilitating the enrollment of their employees in qualified health and dental plans; Meeting the requirements of the new statutory provisions established by HB 609 and any implementing regulations; Implementing procedures for the certification, recertification, and decertification of health plans consistent with Sections 1301 and 1311 of the ACA and HHS guidelines; Providing for the operation of a toll-free telephone hotline to respond to requests for assistance; Providing for enrollment periods pursuant to Section 1311(c) (6) of the ACA; 8 Maintaining an internet website though which enrollees and prospective enrollees may obtain standardized comparative information on qualified health and dental plans; Assigning a rating to each qualified health and dental plan offered through the Exchange and determining each plan s level of coverage in accordance with HHS requirements; Using a standardized format for presenting health benefit options in the Exchange; Informing individuals of eligibility requirements for the Medicaid and CHIP programs (or any applicable state or local public program). If the screening of the application identifies an individual eligible for any such program, the Exchange must enroll the individual in that program; Establishing and making available by electronic means: (a) a calculator to determine the actual cost of coverage after the application of premium tax credits and cost-sharing reduction under the ACA; and (b) a consumer tool to calculate out-of-pocket costs for each health benefit plan offered through the Exchange if the data required to support the tool is provided by the health insurer offering a health benefit plan through the Exchange; 4

5 Developing a standardized application for qualified individuals and small employers to use to apply for health benefits through the Exchange (which must be used by insurers certified to offer plans through the Exchange); Granting certifications to individuals attesting to an exemption from the individual responsibility requirement and penalties associated with that requirement; 9 Transferring information to the Secretary of the Treasury regarding: (a) Individuals exempted from the individual responsibility requirement; (b) Employed individuals eligible for premium tax credits; and (c) Individuals with changes to their employer-sponsored coverage; Providing to each employer the name of employees who cease coverage under a qualified health plan during a plan year and the effective date of the cessation; Performing duties required by the Secretaries of HHS or the Treasury for determining eligibility for premium tax credits, reduced cost-sharing, or individual responsibility requirement exemptions; Establishing a Navigator program to award grants to selected entities (discussed below); Establishing a fair and impartial health insurance producer referral network to assist individuals and qualified small employers in obtaining health insurance coverage through the Exchange. The producers (i.e., brokers and agents) in the referral network must be compensated in a manner appropriate to the health insurance broker industry; Crediting the amount of any free choice voucher to the monthly premium of the plan in which a qualified employee is enrolled and collecting the amount credited from the offering employer; 10 Forming stakeholder groups to provide consultation and guidance to the Exchange or its Board regarding carrying out the activities required under the ACA and HB 609 (discussed below); 11 Meeting financial integrity requirements specified in the bill; 12 Developing guidelines for qualified health and dental plans to mitigate the occurrence of adverse selection within the Exchange; and Reviewing the rate of premium growth within the Exchange and outside the Exchange, and considering the information in developing recommendations on whether to continue limiting qualified employer status to small employers. Unlike the ACA, the bill limits the definition of small employers to employers with not more than 50 employees, rather than the ACA s limit of employers with more than 100 employees. 13 Stakeholder Groups: As referenced above, one of the responsibilities of an Exchange under both the ACA and House bill 609 is to form stakeholder groups that advise the board. These stakeholder groups may include as members: (a) Educated health care consumers (who are enrollees in qualified health and dental plans); 5

6 (b) Individuals and entities with experience in facilitating enrollment in qualified health and dental plans; (c) Representatives of small employers and self-employed individuals; (d) Advocates for enrolling hard-to-reach populations; (e) Appropriate eligible entities (discussed below); (f) Health insurance issuers; (g) Health care providers (including, but not limited to, physicians, hospitals, pharmacists, or pharmaceutical manufacturers); and (h) Others interested in access to affordable quality health care services. Contracting with Other Entities and Interactions with Medicaid: The bill provides that the Exchange may contract with or enter into a memorandum of understanding with an eligible entity (as defined by federal law) or the health plan for state employees to perform any or all of its administrative functions described in sections to Under the ACA, an eligible entity includes: (1) the state Medicaid agency or (2) entities with experience in the individual and small group health insurance markets. The ACA precludes health insurers from serving as an eligibility entity with whom the Exchange can contract to conduct Exchange Business. 14 Medicaid and CHIP beneficiaries ( beneficiaries of eligible entities ) may select any health or dental plans offered by a health insurer contracted with MO HealthNet. The Director of the MO HealthNet Division must provide a list of contracted health insurers to the Exchange on at least an annual basis. 15 However, plans to Medicaid and CHIP beneficiaries will be offered in a separate and distinct risk pool within the Exchange from the plans for consumers who are not on Medicaid or CHIP. Moreover, health insurers in the Exchange are not required to offer health plans to Medicaid and CHIP beneficiaries. 16 The Exchange may contract with the DIFP for certification, recertification and decertification of qualified health and dental plans. The Exchange may enter into information-sharing agreements with federal and state agencies and other state Exchanges to carry out its responsibilities, provided such agreements include confidentiality protections and comply with all state and federal law and regulations. (Sections , ) E. Requirements for Certifying Health Plans: Under House Bill 609 the Exchange, must certify a health benefit plan as a qualified health plan or a qualified dental plan if that plan has met the certification requirements of the bill consistent with Sections 1301 and 1311 of the ACA 17 6

7 Section 1311 of the ACA requires the Secretary of HHS to promulgate regulations that set minimum standards for qualified health plans in such areas as marketing, network adequacy (including access to essential community providers), plan accreditation (based on quality, patient experience, access, network adequacy, etc.), quality improvement, adoption of uniform enrollment forms (for individuals and small employers), use of standard formats (for presenting plan options), performance information (on standardized quality measures) and reporting on pediatric care quality. 18 Thus, plans seeking certification from the Show-Me Exchange will need to meet these standards. The ACA also requires qualified health plans to provide the law s essential benefits package 19 and to meet transparency requirements. 20 In addition, Exchanges must require health plans seeking certification to justify any planned premium increases, and plans with unreasonable premium increases can be excluded from participating in an Exchange. 21 Finally, the ACA requires insurers that offer qualified plans to: (1) be licensed in the state(s) where they are doing business; (2) agree to offer at least one silver level plan and one gold level plan in an Exchange; (3) charge the same premium for the same health plan regardless of whether the insurer is selling the plan through an Exchange, selling directly to individuals or employers outside the Exchange, or selling through an agent; and (4) comply with HHS regulations and any other requirements established by the Exchange. 22 These are also provisions that Missouri health plans will have to meet in order to achieve certification. HB 609 explicitly requires health insurers seeking certification from the Exchange to: 23 (1) Submit justification of premium increases as required by the ACA; (2) Provide public disclosure of information as required by the ACA; 24 (3) Provide consumer education about the Exchange as required by the ACA. (4) Provide notification of health benefit plan changes; (5) Promptly notify affected individuals regarding price and benefit changes, or other changes in circumstance that could materially impact enrollment or coverage; and (6) Provide timely updates regarding the plan's provider network including the addition of new providers or the withdrawal of an existing provider through the publicly accessible internet website selected by the Exchange as the most appropriate way to disseminate the information. HB 609 further provides that the Exchange may not exclude a health benefit plan: (1) On the basis that the plan is a fee-for-service plan; (2) Through the imposition of premium price controls by the Exchange; or (3) On the basis that the health benefit plan provides treatments necessary to prevent patients' deaths in circumstances the Exchange determines are inappropriate or too costly; or (4) On the basis that the health benefit plan is offered by a health insurer not contracted with the MO HealthNet program. 7

8 The first three of these provisions are requirements of the ACA. The fourth provision, added by HB 609, would preclude the Exchange from being able to require Exchange plans to also serve MO HealtNet beneficiaries as a condition of their participation in the Exchange. Health insurance issuers participating in the Exchange may offer dental plans (without being licensed to offer other health benefits) and may offer discounted rates on qualified dental plans when purchased jointly with a qualified health plan. The bill also authorizes the Exchange to provide limited scope dental benefits if the plan provides pediatric benefits that meet applicable federal requirements. (Section (17)) F. Navigators As noted above, the legislation requires the Exchange to set up a Navigator program to award grants to eligible entities in accordance with the ACA. Consistent with the ACA, the Navigator grants cannot be made from federal funds used to establish the Exchange. Unlike the original bill, the version passed out of Committee does not include specific requirements for Navigators but simply references the ACA s requirements. To become eligible for a navigator grant, the ACA provides that an entity must demonstrate that it has existing relationships or could readily establish relationships with employers and employees, consumers or self-employed individuals likely to enroll in a qualified health plan. Moreover, grants provided to Navigators must be used to carry out the following functions: Conducting public education activities to raise awareness about the Exchange and the availability of qualified health plans; Distributing fair and impartial information regarding enrollment in qualified health plans and the availability of premium tax credits; Facilitating enrollment into qualified plans; Providing referrals to any applicable office of health insurance consumer assistance or health insurance ombudsman or any other appropriate state agency regarding grievances, complaints, or questions about qualified health plans; and Providing information that is culturally and linguistically appropriate to the needs of the population being served by the Exchange. Navigators are subject to HHS standards and must avoid conflicts of interest. They cannot be health insurers nor can they receive any consideration, directly or indirectly, from health insurers in connection with the enrollment of individuals or small employers in qualified plans. The ACA specifies that a wide variety of entities can serve as navigators provided they do not have such conflicts of interest, including: community- and consumer-focused nonprofits; trade, industry, and professional associations; commercial fishing, ranching, 8

9 and farming organizations; chambers of commerce; unions; Small Business Administration resource partners; licensed insurance agents and brokers; and other entities capable of carrying out the duties of a navigator. 25 HB 609 does not designate which types of entities will serve as navigators in Missouri, thus leaving that decision to the Board or Exchange staff. G. Solvency Requirements and Certification/Deccertification Procedures (Section ) The Exchange may not exempt health insurers seeking certification through the Exchange from state licensure or solvency requirements. The Director of the DIFP will determine whether a health plan seeking certification or recertification meets all of the requirements related to licensure and solvency. As noted earlier, the Exchange may contract with the DIFP Director for certification and decertification of plans. The Exchange must establish an appeals process for health insurance issuers who have been denied certification as a qualified health and/or dental plan or have been decertified. (Section ) H. Funding the Exchange The bill provides that federal funding for direct costs related to the development and operation of the Exchange through 2014, the first year of operation, shall be provided under federal law, presumably through the various federal grants for establishing and setting up Exchanges. However, the Exchange must be financially self-sufficient through fees and assessments beginning on January 1, 2015, as required by the ACA. HB 609 provides that the Exchange will charge assessments or user fees to health insurance issuers, whether or not they are participating in the Exchange; for each policyholder of an individual health insurance policy issued in this state; for each employee covered under a small employer policy issued in this state; and may otherwise generate funding necessary to support its operations. Any assessments or fees charged to health insurance issuers shall be limited to the minimum amount necessary to pay for the administrative and capital costs and expenses that have been approved in the annual budget process, with consideration of other available funding sources. Services performed by the Exchange on behalf of other state programs or federal programs may not be funded with assessments or user fees collected from health insurers. Any unexpended funds must be used for further Exchange operations or returned to health insurers as a credit for future imposed assessments or fees. The bill further requires the Board to submit a copy of the annual operating budget for the Exchange to the Speaker of the House of Representatives and Pro Tem of the Senate for all years in which the Exchange is allocated federal funds. The bill requires publication 9

10 of information regarding Exchange financing (including but not limited to assessments, fees, and administrative costs) on the internet. 26 (Section ) I. Miscellaneous The Exchange will be operational to make available for purchase qualified health and dental plans on or before January 1, Prior to January 1, 2014, the Exchange may disclose qualified health and dental plan coverage and price information to consumers. 27 Nothing in HB 609 prohibits qualified individuals or employers from purchasing health and dental plans outside the Exchange. 28 House Bill 609 requires that its new statutory provisions become null and void and unenforceable if the ACA is declared unconstitutional or otherwise invalid in its entirety or if Section 1311 (the Exchange provisions) of the ACA is declared unconstitutional or otherwise invalid by the United States Supreme Court or is repealed by Congress. II. DISCUSSION House Bill 609 establishes the basic framework for Missouri to implement an Exchange. Without passage of a bill this year or next, Missouri would not be able to establish a state-operated Exchange and the federal government would step in and operate an Exchange for Missouri. And without establishing a state Exchange, Missouri will be unable to access federal Exchange planning grants that would help fund a state Exchange. Thus, the legislation would be beneficial to Missouri for these reasons. However, there are a few notable issues that policymakers should carefully consider as the legislation moves forward and if it is implemented. Exchange Governance and Conflicts of Interest As indicated earlier, HB 609 fills in some key areas not addressed by the ACA, most notably the Governance of the Exchange. The Exchange would be governed by a Board which, as noted above, includes representatives of insurance companies and brokers compensated by insurers based on their sale of insurance. The inclusion of insurer and broker representatives on the Board is problematic because of the conflict between their duties as Board members and as representatives of insurance companies or brokers that do business with the Exchange. They will have a fiduciary duty to act in the best interests of the Exchange while also having a fiduciary duty to act in the best interests of their companies. For example, one of the primary functions of the Exchange will be to ensure value and affordability for Missouri businesses and individuals; it will seek to provide the highest quality health plans at the 10

11 lowest possible premium prices, yet insurers and brokers will have an inherent financial interest in higher premiums. The bill is very clear that insurance representatives on the Board will represent health insurance companies already active in the Missouri market (and participating in the Exchange). Their goal may well be to help their companies retain their market dominance and exclude new competitors rather than increasing competition and lowering prices. Moreover, if the Exchange does not certify their plans, they will lose their seats on the Board, thereby creating yet another obvious conflict of interest. Similarly, broker representatives on the board could seek to ensure that brokers are selected as navigators as opposed to the many other types of entities that qualify as navigators under the ACA. It should also be noted that there is nothing to prevent the Board s two at-large members and its four legislator members from also being a broker or an employee of an insurer, thus further stacking the Board with representatives of the insurance industry. While the experience of insurers and brokers could well be an asset to the Exchange, there are ways to take advantage of that experience without creating conflicts of interest. The National Association of Social Insurance (NASI), an expert advisory body that has developed model Exchange provisions, recommends that the Exchange establish an advisory board in which insurance carriers can provide their input. 29 And HB 609 already requires consultation with stakeholder groups on which insurers and other individuals with a direct financial interest can participate. Advisory boards or stakeholder groups are the most appropriate place for such individuals so as to avoid conflicts of interest. 30 Insurers also make the false argument that they should be on the Board because they are allegedly paying for the Exchange through proposed user fees. In fact, almost all Exchange-related funding will come from the premiums paid by consumers and small businesses, and the premium tax credits provided by the federal government. Additional revenues generated by assessments or other fees collected from insurers or other entities would go towards the overhead of operating the Exchange, which represents a small fraction of the overall expenditures. In addition, the ACA allows health plans to include the costs of any such assessments in the monthly premiums (without counting against their administrative and profit portion of the medical loss ratio ), essentially passing the cost on to consumers and small businesses. 31 Therefore, this argument for explicitly allowing conflicted parties such as insurers on the Board is completely unfounded. Rather than place individuals with a direct financial interest on the Board, the State could include unbiased experts in relevant fields. For example, the State of Massachusetts includes slots on the Commonwealth Connector Board for a health economist, an actuary, a representative of small business interests, an employee health plan, a representative of a health consumer organization and a representative of organized labor. Insurers were specifically prohibited from the Board. 32 California s Exchange legislation requires Board members to have demonstrated and acknowledged expertise in two or more of the following areas: individual health coverage small employer health coverage, health benefits and administration, health care finance, administering a public 11

12 or private health care delivery system or purchasing health plan coverage. However, no Board member could have any current affiliation with an insurer, broker, provider, or other entity whose business may be affected by the board. The NASI Recommendations include a similar requirement for board members with demonstrated and acknowledged expertise in certain specialty areas, as long as there is no conflict of interest. Missouri should consider a similar approach. As noted earlier, the legislation attempts to addresses the obvious conflicts by requiring Board members to refrain from deliberating and voting on decisions which affect them. This is certainly a beneficial protection against the significant conflicts that arise in having insurers and brokers on the Board. However, it is difficult to conceive of issues addressed by the Exchange that will not relate to the financial interests of insurers and brokers; an appropriate interpretation of this language would suggest that they would not be permitted to even deliberate and discuss, let alone vote on most Exchange business. 33 Even without voting, however, their presence on the Board could still influence the discussions and the overall direction and operations of the Exchange. Moreover, it is unclear who would ultimately determine which discussions and decisions are appropriate for insurers and broker participation and/or voting. This provision may well require intervention by the Attorney General or others to provide ethical and legal opinions as to whether such participation should be allowed on a great many Exchange issues. Finally, insurers and brokers want representatives on the Board for a reason. Indeed, one health plan testified that two insurers (rather than the one allowed for in the original bill) needed to be on the board, and this recommendation was adopted in the Committee Substitute. It is natural to assume that these representatives will consistently pursue the best interests of their companies/industries above all else; in fact, they may have a legal or contractual obligation to shareholders or their employer to do so. However, allowing such interests to hold a governing position on the Show Me Exchange would codify their ability to operate the Exchange in their interest, rather than the Exchange s stated purpose of serving the general public. Thus, including them on the Board is problematic, even with the provisions excluding them from deliberations and voting. The inclusion of legislators on the Board also raises a question of whether the Exchange would be overly politicized, though the bill appropriately includes members of the majority and minority parties. One alternative would be to have the legislators appoint individuals to certain slots (as provided for in California s Exchange law) rather than serve directly on the Board. Appointment Terms of Board Members The first Board will set the tone for the new Exchange and will make critical and longlasting decisions regarding the establishment and operations of the Exchange. The new version of HB 609 makes minor changes regarding the length of the terms for the initial Board members. 12

13 The earlier versions of the legislation required that the insurance carrier and broker representatives be appointed for initial terms of 3 years while the lone consumer and small employer representatives would have been appointed to initial terms of 2 years. These provisions would have given even more power to insurance companies and insurance brokers. While having two insurers and a broker on the Board is already problematic, giving them longer terms on the first Board would exacerbate this problem. The new version of the bill addresses this concern by requiring that the consumer representative serve for 3 years on the initial Board the same length of time as the 2 insurance representatives. The new Board member with expertise in administering and negotiating health plan contracts would also get a 3 year term on the initial Board. However, the small and large employer representatives still serve only 2 year terms on the first Board. While these improvements are welcome, they do not significantly alter the balance of power given the shorter initial terms allowed for the small and large business representatives and the two at large representatives, and the greater representation of insurers and brokers in comparison to the lone consumer representative. In addition, the legislation still provides that legislators and other state officials (i.e., Department Directors) are permitted to serve as long as they hold their respective titles and positions rather than be limited to two- or three-year terms (and some of them also may well be employed by insurers or licensed as brokers). The bottom line is that these revisions do not resolve the serious problems in having insurers represented on a Board that regulates their activities and determines whether or not the plans they represent will be certified to participate in the Exchange. Diversity of Board Composition The legislation does not address cultural, racial, or geographic diversity of Board members. California s Exchange law has a requirement that the governing board take into account cultural, ethnic and geographic diversity so that the board composition reflects the communities of the state while pending legislation in Maryland includes a similar provision. 34 Including such a provision would help ensure that the Exchange works well for different populations and communities across Missouri. 35 For example, ensuring geographic diversity might help to ensure that both rural and urban Missourians are adequately represented on the Board. 36 Establishment of Insurance Producer Referral Network As noted above, the bill would require the Exchange to establish a fair and impartial health insurance producer referral network. The intent of this provision seems to be that individuals have another option to access coverage in addition to the internet, toll-free hotlines, and navigators that the bill requires. Certainly brokers will continue to be an important way for some people to access health insurance through the new Exchange, along with the Navigator program created by the ACA. Thus, it seems reasonable to include a referral network provided that it does not divert significant operational funds 13

14 of the Exchange for the establishment of such a network. The current version of the bill appropriately separates out the referral network from the navigator function discussed earlier (in contrast to the original bill). If such a network is to be operated by the Exchange, the Board or staff should develop measures to monitor the performance of the referral network, e.g., to ensure that brokers in the network do not steer individuals to health plans that are less advantageous for consumers but which provide brokers with greater compensation (including plans that are outside the Exchange). And the Exchange may want to develop mechanisms for ensuring that brokers know where to refer lower-income individuals who are more likely to qualify for Medicaid and CHIP rather than the private insurance with which they are more accustomed to dealing. It should be noted that Section 1312(e) of the ACA requires the Secretary of HHS to establish procedures under which states may allow agents or brokers to enroll individuals and small employers in qualified health plans, and assist individuals in applying for premium credits and cost-sharing reduction in Exchanges. Thus, agents or brokers are likely to have a significant role in the Exchange regardless of whether the State creates a new insurance producer referral network as part of the Exchange. 37 The Exchange is Subject to the Missouri Open Meetings and Records Act The legislation would subject the Exchange to the Missouri Open Meetings and Records Act (RSMo Chapter 610). This provision will help to ensure that the Exchange has the trust of the public and that it will remain accountable to the individuals and small businesses that it serves, as well as the State. These provisions would be even stronger if they ensured that all information relating to meetings and other Exchange business (not just meeting notices) is promptly available on the internet rather than just through standard public record requests. Merging the Individual and Small Group Markets As referenced above, the bill would create a unified Exchange that would assist individuals who purchase coverage in the individual market and qualified small employers in facilitating the enrollment of their employees in qualified plans in the SHOP Exchange (the Exchange for small employers). However, the Exchange is unified for administrative purposes only. 38 The bill would prohibit the Exchange from combining actuarial and underwriting functions for the individual and small employer group market, keeping intact a separate and distinct risk pool for the individual small group markets. Combining the small group and individual markets may or may not be a wise choice. The Massachusetts Connector found it advantageous to combine these two markets and the Missouri Exchange may want to monitor premium costs and assess whether this approach would be worthwhile for Missouri. Combining the two markets may cause individual market prices to decrease while small employer market prices increase slightly, as it has in Massachusetts. 39 Regardless, it seems unwise to preclude this option entirely without allowing the Exchange the opportunity to study 14

15 whether such an approach is beneficial. In addition, the bill already includes language requiring the Exchange to study premium growth inside and outside the Exchange in order to help determine whether to limit the Exchange to small employers. Such data could also inform decisions about whether to combine the small group and individual markets but the current language forecloses that option. Missouri policymakers may want to preserve the Exchange s flexibility to combine the individual and small group markets, if appropriate, rather than foreclose that option. Adverse Selection An important issue in setting up an Exchange is the risk of adverse selection the separation of healthier and less-healthy people into different insurance arrangements. 40 In this instance, there is a risk that sicker, more expensive individuals end up in the Exchange and while healthier, less expensive individuals receive coverage outside the Exchange. 41 If outside plans do not have to meet the requirements set for Exchange plans it is possible that Exchange plans could end up enrolling disproportionately sicker populations because they contain features that plans outside of the Exchange might avoid, such as a wider array of specialists, that would be more attractive to people with greater health care needs. The ACA and HB 609 include some protections against adverse selection. For example the ACA s premium tax credits provide incentives for healthier individuals to enter the Exchange as those credits are only offered for individuals purchasing health insurance through the Exchange, and the federal law s private market reforms (e.g., prohibition on lifetime limits and no denials of coverage for pre-existing conditions, etc.) generally apply inside and outside the Exchange. HB 609 also requires the Exchange to develop guidelines for plans to mitigate the occurrence of adverse selection within the Exchange as allowable under the federal act; and to review the rate of premium growth within the Exchange and outside the Exchange, and consider the information in developing recommendations on whether to continue limiting qualified employer status to small employers. 42 However, many of the rules specific to Exchanges do not apply to plans operating outside the Exchanges. The ACA does not require insurers to participate in the Exchange, and outside plans are not subject to all of the same benefits standards as Exchange plans. For example, the ACA does not require plans outside of the Exchange to offer Silver and Gold plans that are required in the Exchange. A state, however, could opt to apply some or all of the same standards required for qualified health plans offered in the Exchange to plans offered in competing markets outside the Exchange. For example, a state could require insurers to offer comparable products inside and outside the Exchange. The failure to include such provisions is certainly not a flaw in the legislation but the State may want to consider these or other such measures to prevent adverse selection and drive down the costs of coverage in the Exchange as it moves forward. 43 Coordination of the Exchange and Medicaid 15

16 HB 609 includes the minimum ACA requirements for coordinating the Exchange and Medicaid, and includes some additional provisions to allow the selection of Medicaid plans through the Exchange. However, the bill does not incorporate NASI recommendations designed to insure seamless transitions back and forth between the Exchange and Medicaid when there are fluctuations in income (e.g., by ensuring that there are plans that serve both Medicaid and Exchange participants, or by promoting consistent eligibility and verification requirements across Medicaid and the Exchange). 44 Including these provisions would increase the overall effectiveness of the Exchange given the reality that a high percentage of individuals will move back and forth between the Exchange and Medicaid or CHIP. 45 It makes sense to ensure that individuals can stay in the same plan and keep their providers without interruptions in their access to care when they experience minor fluctuations in income. As noted earlier, HB 609 includes some provisions designed to coordinate the Exchange with Medicaid, and some which might inhibit such coordination. The bill provides that Medicaid beneficiaries could purchase a plan through the Exchange from a list of plans maintained by the Director of the MO HealthNet Division. This could be a positive feature depending on the details. However, health insurers may choose not to offer health plans to Medicaid and CHIP beneficiaries and cannot be excluded from the Exchange from failing to contract with the MO HealthNet Division. These provisions eliminate one potential tool for effectively coordinating Medicaid and the Exchange a requirement that plans be certified as both Medicaid and Exchange plans. The legislation would not preclude plans from being dually certified if they so choose (though the Exchange could not impose such a requirement). Such coordination is critical to ensuring seamless transitions for individuals with fluctuating incomes as noted above. 46 Conclusion House Bill 609 would authorize Missouri to establish its own Exchange, rather than having the federal government operate an Exchange in the state. The federal Exchange is yet to be defined in rules or guidance. This bill would enable Missouri to meet federal requirements while developing a model that could meet the needs of its residents and businesses. As explained above, the bill allows individuals with conflicts of interest, including insurers and brokers, to serve on the Exchange Board. These and other issues could well be addressed as the legislation moves forward. 16

17 Notes 1 Exchanges have been proposed and implemented well before the ACA was passed, in several states. Perhaps the most well known Exchange is the Massachusetts Connector, implemented by that State as part of its health care reform law. However, there are numerous other examples, such as Utah s Exchange or the Exchange recently established by the California Legislature. Missouri has previously entertained health insurance Exchange legislation as well, though none has been enacted. See House Bill 818, as introduced by Representative Ervin, in 2007, which would have authorized the Governor to establish a Missouri Health Insurance Exchange as a private, nonprofit corporation. 2 ACA, Section 1321(c). 3 In a few specific places, the bill borrows from the recommendations of another expert advisory body, the National Academy of Social Insurance (NASI) a body that consists of the nation's leading experts on social insurance and whose mission is to promote understanding of how social insurance contributes to economic security and a vibrant economy. The NASI recommendations include alternative language for some of the NAIC provisions and also included recommendations where both the ACA and the NAIC were silent. See National Association of Social Insurance, Report from the Study Panel on Health Insurance Exchanges Created Under the Patient Protection and Affordable Care Act, Designing an Exchange: A Toolkit for State Policymakers, January 2011 (hereinafter NASI Recommendations ) (available online at: olkit%20for%20state%20policymakers.pdf). 4 There are three options for the governance of an Exchange. The State could set up the Exchange as a: (a) governmental agency; (b) quasi-governmental agency; or (c) nonprofit entity/corporation. Each option has advantages and disadvantages. For example, if the Exchange were set up in an existing or new state agency, it could have direct access to information databases that will be necessary for streamlining enrollment in health coverage programs but this could also hamstring the Exchange by subjecting it to cumbersome state procedural and oversight rules. Setting up the Exchange as a non-profit entity could create significant flexibility and reduce the effect of political decisions upon the Exchange but also could reduce public transparency and accountability for the Exchange. For a more complete discussion of these issues, see Families USA, Implementing Health Insurance Exchanges: Options for Governance and Oversight, draft, March 2011 (hereinafter Families USA Draft )(available at: 5 Section The bill says little else about the duties of the Board. The NASI specifies some of the possible duties of an Exchange Board in its recommendations, including: (1) appointing an Executive Director, and (2) establishing a governance 17

18 committee, an audit committee, and an advisory committee (to take into account the views of the health care industry other stakeholders regarding the operation of the Exchange). NASI Recommendations at 24, 26. For a detailed description of possible Board duties, see Families USA Draft at 10 (based on the duties of the Massachusetts Connector Board and the Exchange requirements in a recent announcement for Exchange planning and implementation grants). Other duties could include establishing a process for the certification, recertification, and decertification of health plans that meet or exceed the minimum benefit and other requirements for offering coverage through the Exchange, or implementing a rating system for plans that have been certified to participate in the exchange based on quality and affordability. Families USA Draft at 10. Many Board responsibilities could ultimately be delegated to the Executive Director, staff or contractors of the Exchange. 6 Section of the original version of HB 609 would have prohibited Board members or employees of the Exchange from receiving any gain or profit from any funds or transaction of the exchange, except for benefits common to all members, if entitled thereto. 7 House Bill 609 defines a qualified health plan as a plan that has a certification attesting that the benefit plan offered meets the criteria in Section 1311(c) of the ACA and section of House Bill 609. Section 1311(c) of the ACA requires that a qualified health plan must, at minimum, meet these following requirements: Not employing marketing practices or benefit designs that have the effect of discouraging individuals with significant health needs from enrolling in the plan; Ensuring a sufficient choice of providers; Providing information to enrollees and prospective enrollees on the availability of in-network and out-of-network providers; Implementing a quality improvement strategy; Including providers that serve low-income, medically-underserved individuals in its network; Being accredited on local performance or clinical quality measures by any entity recognized by the HHS Secretary for accrediting health insurance issuers or plans; Utilizing an uniform enrollment form that individuals can use to enroll in health plans offered by an exchange and takes into account criteria that NAIC submits to the HHS Secretary; Utilizing a standard format for presenting health benefits plan options; and Providing information on any quality measures for health plan performance. 18

19 A qualified individual (who is able to enroll in the Exchange) is defined as an individual who: May be a minor; Seeks to enroll in a qualified health plan offered to individuals through the Exchange; Resides in Missouri; Is not incarcerated at the time of enrollment (other than incarceration pending the disposition of charges); and Is reasonably expected to be for the entire period for which enrollment is sought be a citizen or national of the United States or an alien lawfully present in the United States. 8 Section 1311(c)(6) of the ACA requires that the HHS Secretary impose requirements on Exchanges to provide for: (A) an initial open enrollment, as determined by the Secretary (such determination to be made not later than July 1, 2012); (B) annual open enrollment periods, as determined by the Secretary for calendar years after the initial enrollment period; (C) special enrollment periods specified in section 9801 of the Internal Revenue Code of 1986 and other special enrollment periods under circumstances similar to such periods under part D of title XVIII of the Social Security Act; and (D) special monthly enrollment periods for Indians (as defined in section 4 of the Indian Health Care Improvement Act). 9 The ACA requires that Exchanges must: (H) subject to section 1411, grant a certification attesting that, for purposes of the individual responsibility penalty under section 5000A of the Internal Revenue Code of 1986, an individual is exempt from the individual requirement or from the penalty imposed by such section because (i) there is no affordable qualified health plan available through the Exchange, or the individual s employer, covering the individual; or (ii) the individual meets the requirements for any other such exemption from the individual responsibility requirement or penalty; ACA, Section 1311(d)(4)(H). 10 There are circumstances where certain employees can still access coverage through the Exchange, even if their employer offers adequate coverage. See Section of the Affordable Care Act. These are employees who receive free choice vouchers from their employers. Employers are required to offer free choice vouchers to workers who earn less than 400% of the federal poverty level and whose contribution to the employer s 19

20 coverage plan would fall between 8 and 9.8 percent of his or her household income for the employer-sponsored coverage. An employee who is offered a voucher can choose to participate in the employer plan or use the voucher to purchase coverage through the Exchange. By using the voucher, the employee is able to take the employer s contribution toward coverage and use it for a potentially more affordable Exchange plan. The amount of the voucher is equal to the employer s share of the premium in the employer plan. The employer must provide its share of self-only or dependent coverage at the employee s choice. The Exchange must credit the amount of the voucher towards the cost of the premium and collect the money from the employer. If the amount of the voucher exceeds the cost of the premium for the plan the worker buys through the Exchange, the excess is to be paid to the employee. Employees and/or their families who use free choice vouchers to pay for Exchange coverage will not be eligible for subsidies. 11 The ACA requires that Exchanges consult with stakeholders relevant to the execution of the Exchange s duties: (A) health care consumers who are enrollees in qualified health plans; (B) individuals and entities with experience in facilitating enrollment in qualified health plans; (C) representatives of small businesses and self employed individuals; (D) State Medicaid offices; and (E) advocates for enrolling hard to reach populations. ACA, Section 1311(d)(6). 12 HB 609 requires the Exchange to meet the following financial integrity requirements: (a) Keep an accurate accounting of all activities, receipts, and expenditures, and annually submit to the Secretary, the Governor, and the General Assembly a report concerning such accountings; (b) Fully cooperate with any investigation conducted by the Secretary in accordance with the Secretary's authority under the federal act, and allow the Secretary, in coordination with the Inspector General of the U.S. Department of Health and Human Services, to: a. Investigate the affairs of the exchange; b. Examine the properties and records of the exchange; and c. Require periodic reports in relation to the activities undertaken by the Exchange; and (c) In carrying out its activities under sections to , not use any funds intended for the administrative and operational expenses of the exchange for staff retreats, promotional giveaways, excessive executive compensation, or promotion of federal or state legislative and regulatory modifications. 20

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